🧱 What is the COSO Framework?
COSO stands for the Committee of Sponsoring Organizations of the Treadway Commission. The COSO Framework is a widely used model for designing, implementing, and evaluating internal controls and enterprise risk management (ERM) in organizations.
🛡️ Purpose of the COSO Framework
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Ensure effective internal control systems
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Improve risk management
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Support reliable financial reporting
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Promote compliance with laws and regulations
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Safeguard assets from fraud and errors
🧩 The 5 Components of COSO Internal Control Framework
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Control Environment
➤ Sets the tone at the top. Includes ethics, integrity, management philosophy, and organizational structure. -
Risk Assessment
➤ Identifying and analyzing internal and external risks that could affect objectives. -
Control Activities
➤ Policies and procedures that help ensure management directives are followed (e.g., approvals, verifications, reconciliations). -
Information and Communication
➤ Internal and external communication to ensure timely, relevant, and quality information flow. -
Monitoring Activities
➤ Ongoing evaluations and periodic audits to ensure controls are functioning properly and are updated as needed.
🧱 The COSO Cube
The COSO framework is often visualized as a cube showing:
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3 categories of objectives:
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Operations (efficiency, effectiveness)
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Reporting (reliability, timeliness)
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Compliance (with laws/regulations)
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5 components (listed above)
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All levels of the organization (entity-wide, division, operating unit)
✅ Why It Matters
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Used by auditors and regulators (e.g., under SOX — Sarbanes-Oxley Act)
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Helps detect and prevent fraud
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Builds trust in financial reporting and governance
